TBC BANK GROUP International Financial Reporting Standards Consolidated Condensed Interim Financial Information (Unaudited) 30 June 2011

Transcription

1 TBC BANK GROUP International Financial Reporting Standards Consolidated Condensed Interim Financial Information (Unaudited) 30 June 2011

2 CONTENTS REVIEW REPORT UNAUDITED CONSOLIDATED CONDENSED INTERIM FINANCIAL INFORMATION Unaudited Consolidated Condensed Interim Statement of Financial Position...1 Unaudited Consolidated Condensed Interim Statement of Comprehensive Income...2 Unaudited Consolidated Condensed Interim Statement of Changes in Equity...4 Unaudited Consolidated Condensed Interim Statement of Cash Flows...5 Notes to the Unaudited Consolidated Condensed Interim Financial Information 1 Introduction Summary of Significant Accounting Policies Critical Accounting Estimates, and Judgements in Applying Accounting Policies New Accounting Pronouncements Cash and Cash Equivalents Due from Other Banks Loans and Advances to Customers Premises and Equipment Goodwill Disposal Group Held for Sale Due to Other Banks Customer Accounts Other Borrowed Funds Provisions for Liabilities, Charges and Credit Related Commitments Share Capital Share Based Payments Earnings per Share Segment Information Interest Income and Expense Fee and Commission Income and Expense Other Operating Income Administrative and Other Operating Expenses Income Taxes Contingencies and Commitments Financial Risk Management Management of Capital Related Party Transactions Business Combinations...38

3 Report on Review of Interim Financial Statements To the Shareholders and Management of TBC Bank Group: Introduction We have reviewed the accompanying consolidated interim statement of financial position of JSC TBC Bank (the Bank ) and its subsidiaries (together the Group ) as at 30 June 2011 and the related consolidated interim statements of comprehensive income, changes in equity and cash flows for the sixmonth period then ended, and a summary of significant accounting policies and other explanatory notes. Management is responsible for the preparation and fair presentation of this consolidated condensed interim financial information in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting ( IAS 34 ). Our responsibility is to express a conclusion on this consolidated condensed interim financial information based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated condensed interim financial information does not present fairly, in all material respects, the consolidated financial position of the Group as at 30 June 2011 and of its financial performance and its cash flows for the six-month period then ended in accordance with IAS October 2011 Tbilisi, Georgia PricewaterhouseCoopers Central Asia and Caucasus B.V. Georgia Branch; Address: #7 Bambis Rigi Street, Business Center Mantashevi, Tbilisi 0105, Georgia, T: +995 (32) , F:+995 (32) ,

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5 Consolidated Condensed Interim Statement of Comprehensive Income (Unaudited see the Review Report) Notes 30 June 2011 (Unaudited) 30 June 2010 (Unaudited) Interest income , ,919 Interest expense 19 (64,135) (53,143) Net interest income 96,589 79,776 Provision for loan impairment 7 (3,919) (24,901) Net interest income after provision for loan impairment 92,670 54,875 Fee and commission income 20 18,559 14,137 Fee and commission expense 20 (7,160) (4,964) Gains less losses from trading in foreign currencies 17,446 11,018 Foreign exchange translation (losses less gains)/gains less losses (6,605) (1,284) Impairment of investment securities available for sale - (55) (Provision for) / recovery of liabilities, charges and credit related commitments (1,288) 646 Recovery of impairment of investments in finance lease (Provision for) / recovery of impairment of other financial assets (641) 877 Other operating income 21 4,465 5,542 Staff costs (34,349) (24,339) Administrative and other operating expenses 22 (26,022) (24,664) Profit before tax from continuing operations 57,362 31,966 Income tax expense 23 (8,443) (2,745) Profit for the period from continuing operations 48,919 29,221 Discontinued operations Loss for the period from discontinued operations 10 (1,078) (815) Profit for the period 47,841 28,406 Other comprehensive income: Revaluation of available-for-sale investments 167 (181) Exchange differences on translation to presentation currency (839) 2,390 Other comprehensive income for the period (672) 2,209 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 47,169 30,615 The notes set out on pages 6 to 39 form an integral part of this unaudited consolidated condensed interim financial information. 2

6 Consolidated Condensed Interim Statement of Comprehensive Income (Continued) (Unaudited see the Review Report) Profit is attributable to: - Owners of the Bank 47,642 28,298 - Non-controlling interest Profit for the period 47,841 28,406 Total comprehensive income is attributable to: - Owners of the Bank 46,970 30,507 - Non-controlling interest Total comprehensive income for the period 47,169 30,615 Earnings per share for profit from continuing operations attributable to the owners of the Group: - Basic earnings per share Diluted earnings per share Earnings per share for profit attributable to the owners of the Group: - Basic earnings per share Diluted earnings per share The notes set out on pages 6 to 39 form an integral part of this unaudited consolidated condensed interim financial information. 3

7 Consolidated Condensed Interim Statement of Changes in Equity (Unaudited see the Review Report) Notes Share capital Attributable to equity holders of the Bank Other Retained Total reserves earnings Share premium Noncontrolling interest Total equity Balance at 1 January , ,723 32,806 71, ,449 5, ,743 Profit for the six months ended 30 June ,298 28, ,406 Other comprehensive income for the six months ended 30 June ,209-2,209-2,209 Balance at 30 June 2010 (Unaudited) 15, ,723 35, , ,956 5, ,358 Balance at 1 January , ,723 31, , ,072 5, ,272 Profit for the six months ended 30 June ,642 47, ,841 Other comprehensive income for the six months ended 30 June (672) - (672) - (672) Dividends paid (12,345) (12,345) - (12,345) Business combination ,125 3,125 Balance at 30 June 2011 (Unaudited) 15, ,723 31, , ,697 8, ,221 The notes set out on pages 6 to 39 form an integral part of this unaudited consolidated condensed interim financial information. 4

8 Consolidated Condensed Interim Statement of Cash Flows (Unaudited see the Review Report) Note 30 June 2011 (Unaudited) 30 June 2010 (Unaudited) Cash flows from operating activities Interest received 158, ,466 Interest paid (63,538) (52,503) Fees and commissions received 18,559 14,272 Fees and commissions paid (7,160) (5,177) Income received from trading in foreign currencies 17,446 11,018 Other operating income received 4,760 5,810 Staff costs paid (34,960) (24,740) Administrative and other operating expenses paid (20,477) (17,791) Income tax (paid) / refunded 1,395 (570) Cash flows from operating activities before changes in operating assets and liabilities 74,325 37,785 Changes in operating assets and liabilities Net (increase) in due from other banks (158,293) (46,653) Net (increase) in and advances to customers (334,095) (142,973) Net (increase) / decrease in investment in finance lease (2,046) 537 Net (increase) in other financial assets (2,885) (2,369) Net decrease / (increase) in other assets 3,630 (14,616) Net increase in due to other banks 74,738 15,582 Net increase in customer accounts 294, ,590 Net increase / (decrease) in other financial liabilities 496 (360) Net increase in other liabilities 1,779 3,823 Net cash used in operating activities (48,342) (33,654) Cash flows from investing activities Acquisition of investment securities available for sale (396,972) (191,657) Proceeds from redemption at maturity of investment securities available for sale 357,403 63,921 Acquisition of investment securities held to maturity - (9,973) Proceeds from redemption of investment securities held to maturity - 115,496 Acquisition of premises, equipment and intangible assets (4,136) (4,657) Inflow of cash and cash equivalents on acquisition Net cash used in investing activities (43,555) (26,870) Cash flows from financing activities Proceeds from other borrowed funds 180,382 27,463 Redemption of other borrowed funds (117,199) - Redemption of subordinated debt (10,559) - Dividends paid (12,345) - Net cash from financing activities 40,279 27,463 Effect of exchange rate changes on cash and cash equivalents (254) (453) Net decrease in cash and cash equivalents (51,872) (33,514) Cash and cash equivalents at the beginning of the period 5 275, ,848 Cash and cash equivalents at the end of the period 5 223, ,334 The notes set out on pages 6 to 39 form an integral part of this unaudited consolidated condensed interim financial information. 5

9 1 Introduction This consolidated condensed interim financial information has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting for the six months ended 30 June 2011 for TBC Bank (the Bank ) and its subsidiaries (together referred to as the Group or TBC Bank Group ). This consolidated condensed interim financial information has been reviewed, not audited. The Bank was incorporated and is domiciled in Georgia on 17 December The Bank is a joint stock company limited by shares and was set up in accordance with Georgian regulations. In year 2009 the Group issued new shares, since then the Group does not have an ultimate controlling party. As at 30 June 2011 and 31 December 2010, the shareholder structure by ownership interest is as following: Shareholders 30 June 2011 Ownership interest,% 31 December 2010 Ownership interest,% International Finance Corporation 20% 20% European Bank for Reconstruction and Development 20% 20% TBC Holdings LTD 21% 21% Deutsche Investitions und Entwicklungsgesellschaft MBH 11% 11% Liquid Crystal International N.V. LLC 7% 7% Individuals 8% 8% JPMorgan Chase Bank 5% 5% Ashmore Cayman SPC 5% 5% Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. 3% 3% Total 100% 100% Principal activity. The Bank s principal business activity is commercial and retail banking operations within Georgia. The Bank has operated under a general banking license issued by the National Bank of the Georgia ( NBG ) since 20 January The Bank has 13 branches (31 December 2010: 13) and 32 service centres (31 December 2010: 30) within Georgia. At 30 June 2011, the Group had 2,412 employees (31 December 2010: 2,291). The Bank is a parent of a group of companies (the Group ) incorporated in Georgia and Azerbaijan, primary business activities include providing banking, leasing, brokerage, card processing services, to corporate and individual customers. The Bank is the Group s main operating unit and accounts for most of the Group s activities. The consolidated financial statements include the following principal subsidiaries: Subsidiary 30 June 2011 Ownership / voting,% 31 December 2010 Ownership / voting,% Country Date of incorporation or acquisition Industry JSC TBC Leasing 89.53% 89.53% Georgia 2003 Leasing TBC Kredit LLC 75.00% 75.00% Azerbaijan 2008 Non-banking credit institution TBC Broker LLC % % Georgia 1999 Brokerage JSC United Financial Corporation 93.32% 93.32% Georgia 1997 Card processing JSC Real Estate Management Fund 100% 100% Georgia 2010 Real Estate Management TBC Pay LLC 100% 100% Georgia 2009 Processing TBC Invest LLC 100% - Israel 2011 PR and marketing Bank Constanta JSC 80% - Georgia 2011 Financial Institution Banking System Service Company LLC % % Georgia 2009 Service 6

10 1 Introduction (Continued) Registered address and place of business. The Bank s registered address is: 7 Marjanishvili Street, 0102 Tbilisi, Georgia. Presentation currency. These consolidated financial statements are presented in thousands of Georgian Lari ("GEL thousands"), unless otherwise indicated. 2 Summary of Significant Accounting Policies Basis of preparation. This consolidated condensed interim financial information has been prepared in accordance with IAS 34 Interim Financial Reporting and should be read in conjunction with the annual financial statements for the year ended 31 December 2010, which have been prepared in accordance with International Financial Reporting Standards (IFRS). Except as described below, the same accounting policies and methods of computation were followed in the preparation of this consolidated condensed interim financial information as compared with the annual consolidated financial statements for the year ended 31 December Certain new standards, interpretations and amendments to the existing standards, as disclosed in the consolidated financial statements for the year ended 31 December 2010, became effective for the Group from 1 January These have not significantly affected the consolidated condensed interim financial information of the Group. Interim period tax measurement. Interim period income tax expense is accrued using the effective tax rate that would be applicable to expected total annual earnings, that is, the estimated weighted average annual effective income tax rate applied to the pre-tax income of the interim period. Foreign currency translation. At 30 June 2011 the closing rate of exchange used for translating foreign currency balances was USD 1 = GEL (31 December 2010: USD 1 = GEL ); EUR 1 = GEL (31 December 2010: EUR 1 = GEL ). Earnings per share. Earnings per share is determined by dividing the profit or loss attributable to owners of the Group by the weighted average number of participating shares outstanding during the reporting period. Segment reporting. Operating segments are reported in a manner consistent with the internal reporting provided to the Group s chief operating decision maker. Segments whose revenue, result or assets are ten percent or more of all the segments are reported separately. Reclassification of available for sale securities. In the consolidated financial statements for the year ended 31 December 2010 the Group incorrectly showed reclassification of investments held to maturity of GEL 115,496 thousand to the available for sale category. This incorrect disclosure did not have any material consequences either in the statement of comprehensive income or statement of financial position. All of these securities were redeemed at maturity prior to 31 December In the statement of cash flows for the 6 months ended 30 June 2010 the redemption is classified as Proceeds from Redemption of Investment Securities Held to Maturity of GEL 115,496 thousand. The third statement of financial position. The third statement of financial position as of 1 January 2010 is not presented in these consolidated condensed interim financial information. The requirement to present the additional opening statement of financial position, when the entity has made a restatement or reclassification, extends to the information in the related notes. Management considered materiality and concluded that the omission of the statement of financial position as of 1 January 2010 and the notes to the additional opening statement of financial position is not material. 3 Critical Accounting Estimates, and Judgements in Applying Accounting Policies Estimates and judgements that have the most significant effect on the amounts recognised in the interim financial information are: 7

11 3 Critical Accounting Estimates, and Judgements in Applying Accounting Policies (Continued) Held-to-maturity financial assets. Management applies judgement in assessing whether financial assets can be categorised as held-to-maturity, in particular its intention and ability to hold the assets to maturity. If the Group fails to keep these investments to maturity other than in certain specific circumstances for example, selling an insignificant amount close to maturity it will be required to reclassify the entire class as available-for-sale. Impairment losses on and advances. The Group regularly reviews its loan portfolios to assess impairment. In determining whether an impairment loss should be recorded in the statement of comprehensive income, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. A 5% increase or decrease between actual loss experience and the loss estimates used will result in an additional or lower charge for loan loss impairment of GEL 7,917 thousand (31 December 2010: GEL 8,313 thousand), respectively. Impairment provisions for individually significant are based on the estimate of discounted future cash flows of the individual taking into account repayments and realisation of any assets held as collateral against the loan. A 5% increase or decrease in the actual future discounted cash flows from individually significant which could arise from a mixture of differences in amounts and timing of the cash flows will result in an additional or lower charge for loan loss provision of GEL 5,376 thousand (31 December 2010: GEL 4,272 thousand), respectively. Finance leases and derecognition of financial assets. Management applies judgement to determine if substantially all the significant risks and rewards of ownership of financial assets and lease assets are transferred to counterparties, in particular which risks and rewards are the most significant and what constitutes substantially all risks and rewards. As at 30 June 2011 the entity had investments in finance lease of GEL 13,411 thousand (31 December 2010: GEL 9,681 thousand). Fair value disclosure of investment properties. Investment properties held by the Group are carried at cost. However, as per the requirements of IAS 40, the Group also discloses the fair value of investment properties as at the reporting dates. In determining the fair values of investment properties, the Group uses the available information on the real estate market in the media, reports of independent appraisers, who hold a recognised and relevant professional qualification, information available on the valuation of similar assets and the general knowledge of the internal appraisals that the Group have. At 30 June 2010, investment properties comprised real estate assets located in Tbilisi and other regions of Georgia with the fair value amounting to GEL 37,100 (31 December 2010: GEL 41,914 thousand). Tax legislation. Georgian tax, currency and customs legislation is subject to varying interpretations. Refer to Note 24. Initial recognition of related party transactions. In the normal course of business the Group enters into transactions with its related parties. IAS 39 requires initial recognition of financial instruments based on their fair values. Judgement is applied in determining if transactions are priced at market or non-market interest rates, where there is no active market for such transactions. The basis for judgement is pricing for similar types of transactions with unrelated parties and effective interest rate analysis. In management judgment, at 30 June 2011 and 31 December 2010, there were no and advances at other than market conditions. Terms and conditions of related party balances are disclosed in Note 27. Goodwill. Recoverable amount of goodwill was estimated based on value in use calculation. Refer to Note 9. Purchase price allocation. The allocation of the purchase price to the assets acquired and liabilities assumed based on their respective fair values resulted in changes in the carrying values of tangible and intangible assets of the acquired entity. As part of the accounting for business combinations it is also 8

12 3 Critical Accounting Estimates, and Judgements in Applying Accounting Policies (Continued) necessary to perform a purchase price allocation exercise to identify appropriate categories of intangible assets that have been purchased. Such exercise involves management judgement with regard to the types of assets identified and the useful economic lives applied with regard to amortisation rates. The amounts recognised are calculated by reference to management forecasts and assumed discount rates, obsolescence curves and attrition rates. Refer to Note 28.This exercise may result in the recognition of goodwill, which is not deductible for tax purposes. Goodwill consists of the excess of purchase price over the fair value of the acquired assets and represents the estimated economic value attributable to future operations. 4 New Accounting Pronouncements Since the Group published its last annual financial statements, certain new standards and interpretations have been issued that are mandatory for the Group s annual accounting periods beginning on or after 1 January 2012 or later and which the Group has not early adopted: IFRS 10, Consolidated financial statements (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), replaces all of the guidance on control and consolidation in IAS 27 Consolidated and separate financial statements and SIC-12 Consolidation - special purpose entities. IFRS 10 changes the definition of control so that the same criteria are applied to all entities to determine control. This definition is supported by extensive application guidance. The Group is considering the implications of this standard on its consolidated condensed financial information. IFRS 11, Joint arrangements, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities Non-Monetary Contributions by Ventures. Changes in the definitions have reduced the number of types of joint arrangements to two: joint operations and joint ventures. The existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures. The Group is considering the implications of the amended standard on its consolidated condensed financial information. IFRS 12, Disclosure of interest in other entities, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity; it replaces the disclosure requirements currently found in IAS 28 Investments in associates. IFRS 12 requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. To meet these objectives, the new standard requires disclosures in a number of areas, including significant judgements and assumptions made in determining whether an entity controls, jointly controls or significantly influences its interests in other entities, extended disclosures on share of non-controlling interests in group activities and cash flows, summarised financial information of subsidiaries with material non-controlling interests, and detailed disclosures of interests in unconsolidated structured entities. The Group is considering the implications of the amended standard on its consolidated condensed financial information. IFRS 13, Fair value measurement, (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013), aims to improve consistency and reduce complexity by providing a precise definition of fair value, and a single source of fair value measurement and disclosure requirements for use across IFRSs. The Group is considering the implications of the amended standard on its consolidated condensed financial information. Amendment to IAS 1, Presentation of financial statements (issued in June 2011 and effective for annual periods beginning on or after 1 July 2012). The amendment requires the entities to separate items presented in other comprehensive income into two groups, based on whether or not they may be recycled to profit or loss in the future. The amendment also changes the title for the statement of comprehensive income to statement of profit or loss and other comprehensive income. The Group is currently assessing the impact of the amended standard on disclosures in its consolidated condensed financial information. 9

13 4 New Accounting Pronouncements (Continued) Amendment to IAS 19, Employee benefits (issued in June 2011 and effective for annual periods beginning on or after 1 January 2013). The amendment makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits. The amendment also changes disclosures for all employee benefits. The Group does not expect the amendments to have any material effect on its consolidated condensed financial information. The Group has also not early adopted any of the new standards and interpretations disclosed in the New Accounting Pronouncements note in its last annual financial statements and effective for its annual periods beginning on or after 1 January Cash and Cash Equivalents 30 June December 2010 Cash on hand 80,920 95,138 Cash balances with the National Bank of Georgia (other than mandatory reserve deposits) 24,540 22,163 Correspondent accounts and overnight placements with other banks 28, ,516 Placements with other banks with original maturities of less than three months 89,752 34,608 Total cash and cash equivalents 223, ,425 94% of correspondent accounts and overnight placements with other banks are placed with OECD banking institutions (31 December 2010: 97%). 40% of placements with other banks with original maturities of less than three months are placed with a single OECD banking institution. The remaining 60% are placed with top ten Georgian banks (31 December 2010: 100%). 6 Due from Other Banks 30 June December 2010 Mandatory cash balances with the National Bank of Georgia 228,855 58,576 Short-term placements with other banks with original maturities of more than three months 4,176 16,160 Total due from other banks 233,031 74,736 Amounts due from other banks are not collateralised. 7 Loans and Advances to Customers 30 June December 2010 Corporate 918, ,559 Consumer 358, ,310 Mortgage 332, ,064 Small and micro 213, ,946 Others 46,046 39,530 Less: Provision for loan impairment (159,120) (167,454) Total and advances to customers 1,708,972 1,380,955 In the consolidated interim financial information management retrospectively changed classification of certain and advances to customers. 10

14 7 Loans and Advances to Customers (Continued) Namely GEL 63,082 thousand was now classified as corporate. Management believes that the revised classification forms a more prudent basis for analyses of the accounts. Movements in the provision for loan impairment during the six months ended 30 June 2011 are as follows: Corporate Consumer Mortgage Small and Total Micro Provision for loan impairment at 1 January ,944 17,736 16,294 10, ,454 Provision for / (recovery of) impairment during the period 2,547 5,934 (1,261) (3,301) 3,919 Amounts written off during the period as uncollectible (13,195) (5,502) (3,489) (1,216) (23,402) Recovery of amounts previously written off as uncollectible 2,682 4,978 2,431 1,058 11,149 Provision for loan impairment at 30 June ,978 23,146 13,975 7, ,120 Movements in the provision for loan impairment during six months ended 30 June 2010 are as follows: Corporate Consumer Mortgage Small and Micro Other Provision for loan impairment at 1 January ,416 25,181 3,911 5, ,949 Provision for / (recovery of) impairment during the period 18,247 2,069 4,734 (251) ,901 Amounts written off during the period as uncollectible (21,463) (13,787) (2,603) (1,100) - (38,953) Recovery of amounts previously written off as uncollectible 5,824 3,810 1,149 1,369-12,152 Provision for loan impairment at 30 June ,024 17,273 7,191 5, ,049 Total Economic sector risk concentrations within the customer loan portfolio are as follows: 30 June December 2010 Amount % Amount % Individuals 690,211 37% 544,374 35% Trade and service 237,196 13% 147,794 10% Real estate 158,983 9% 119,280 8% Oil and gas 122,729 7% 118,339 8% Consumer goods 99,028 5% 95,555 6% Communication 97,037 5% 53,635 3% Construction 93,544 5% 99,769 6% Energy 83,238 4% 106,630 7% Food industry 80,854 4% 69,627 4% Gold pawn 46,046 2% 39,529 3% Mining 34,588 2% 28,395 2% Transport and communication 33,996 2% 24,587 2% Manufacturing 20,323 1% 23,827 1% Agricultural 15,641 1% 41,287 3% Other 54,678 3% 35,781 2% Total and advances to customers (before impairment) 1,868, % 1,548, % 11

15 7 Loans and Advances to Customers (Continued) Information about collateral at 30 June 2011 is as follows: Corporate Consumer Mortgage Small and micro Others Total Unsecured 125, ,868 7,778 19, ,921 Loans collateralised by: - real estate 528,641 69, , ,939-1,105,616 - inventory and equipment 162,075 92, ,952 - jewellery ,046 46,046 - cash deposits 58,368 22, ,650-89,187 - other assets 44, ,370 Total and advances to customers 918, , , ,227 46,046 1,868,092 Information about collateral at 31 December 2010 is as follows: Corporate Consumer Mortgage Small and micro Others Total Unsecured 108, ,164 5,333 1, ,136 Loans collateralised by: - real estate 494,844 56, , , ,573 - inventory and equipment 133,563 88, , ,355 - jewellery ,530 39,530 - cash deposits 33,817 25, ,261-63,292 - other assets 40,558 3,625 2, ,523 Total and advances to customers 811, , , ,946 39,530 1,548,409 12

16 7 Loans and Advances to Customers (Continued) Analysis by credit quality of outstanding at 30 June 2011 is as follows: Corporate Consumer Mortgage Small and micro Others Total Current and not impaired - Borrowers with credit history over two years at original terms 157,478 70, ,083 59, ,610 - Borrowers with credit history over two years renegotiated in ,917 4,941 6,018 5,607-39,483 - new borrowers at original terms 195, , , ,824 46, ,225 - new borrowers renegotiated in ,964 1, ,656 Total current and not impaired 381, , , ,090 46,046 1,052,974 Past due but not impaired - less than 30 days overdue 1,147 2,743 2,420 1,864-8, to 90 days overdue 3,526 1,844 2, , to 180 days overdue 2,217 1,665 1,494 1,747-7, days overdue ,059 Total past due but not impaired 6,890 7,060 6,557 5,129-25,636 Loans individually determined to be impaired (gross) - less than 30 days overdue 179, , to 90 days overdue 10, , to 180 days overdue , days overdue over 360 days overdue Total individually impaired (gross) 191, ,906 Gross carrying value of other 338, ,630 65,355 29, ,576 Less impairment provisions (114,978) (23,146) (13,975) (7,021) - (159,120) Total and advances to customers 803, , , ,206 46,046 1,708,972 For the purposes of the above disclosure, that are current as of the balance sheet data are classified into the current and not impaired category, that are overdue but have sufficient collateral amount are classified into that past due and impaired category. Loans individually determined to be impaired include all that were individually assessed for impairment and due to overdue status, financial position of a borrower and realisability of related collateral were considered as impaired. 13

17 7 Loans and Advances to Customers (Continued) Analysis by credit quality of outstanding at 31 December 2010 is as follows: Corporate Consumer Mortgage Small and micro Others Total Current and not impaired - Borrowers with credit history over two years at original terms 164,096 55, ,200 66, ,271 - Borrowers with credit history over two years renegotiated in ,837 5,668 7,239 9,600-50,344 - new borrowers at original terms 75,096 61,566 61,655 50,002 39, ,849 - new borrowers renegotiated in , ,063 Total current and not impaired 269, , , ,441 39, ,527 Past due but not impaired - less than 30 days overdue - 1,999 2,893 1,383-6, to 90 days overdue - 1,126 1,032 1,796-3, to 180 days overdue 2,404 1,419 1,790 1,330-6, days overdue , ,016 Total past due but not impaired 2,593 5,200 6,845 4,550-19,188 Loans individually determined to be impaired (gross) - less than 30 days overdue 193, , to 90 days overdue 1, , to 180 days overdue 2, , days overdue 6, ,395 - over 360 days overdue Total individually impaired (gross) 204, ,403 Gross carrying value of other 334, ,444 61,090 21, ,291 Less impairment provisions (114,013) (18,817) (18,354) (16,270) - (167,454) Total and advances to customers 697, , , ,676 39,530 1,380,955 The Group applied the portfolio provisioning methodology prescribed by IAS 39, Financial Instruments: Recognition and Measurement, and created portfolio provisions for impairment losses that were incurred but have not been specifically identified with any individual loan by the balance sheet date. The Group s policy is to classify each loan as neither past due nor impaired until specific objective evidence of impairment of the loan is identified. The impairment provisions may exceed the total gross amount of individually impaired as a result of this policy and the portfolio impairment methodology. The primary factors that the Group considers whether a loan is impaired are its overdue status, financial position of a borrower and realisability of related collateral, if any. As a result, the Group presents above an ageing analysis of that are individually determined to be impaired. Current and not impaired, but renegotiated represent the carrying amount of that would be past due or impaired if the terms have not been renegotiated (refer to table above). Past due but not impaired represent collateralised where the fair value of collateral covers the overdue interest and principal repayments. The amount reported as past due but not impaired is the whole balance of such, not only the individual instalments that are past due. 14

18 7 Loans and Advances to Customers (Continued) The fair value of collateral in respect of past due but not impaired and in respect of individually determined to be impaired at 30 June 2011 was as follows: Corporate Consumer Mortgage Small and micro Fair value of collateral - loan past due but not impaired - real estate 6,304 3,387 6,596 4,635 20,922 - inventory and equipment 586 3, ,877 - jewellery Fair value of collateral - individually impaired - real estate 87, ,292 - inventory and equipment 66, ,805 - cash deposits 3, ,135 - other assets 5, ,480 Total Total 170,236 7,140 6,831 5, ,764 The fair value of collateral in respect of past due but not impaired and in respect of individually determined to be impaired at 31 December 2010 was as follows: Corporate Consumer Mortgage Small and micro Total Fair value of collateral - loan past due but not impaired - real estate 2,593 2,520 6,846 4,285 16,244 - inventory and equipment - 2, ,680 - cash deposits Fair value of collateral - individually impaired - real estate 135, ,746 - inventory and equipment 39, ,244 - other assets 8, ,235 Total 185,818 5,201 6,846 4, ,416 The Group s internal appraiser performed physical inspection of pledged real estate and estimated the fair value of real estate at the reporting date date using primarily market comparison method. Fair value of inventory, equipment and other assets was determined by the Group s credit department using the Group s internal guidelines. Amount of fair value of collateral is disclosed to the extent of credit exposure. 15

19 8 Premises and Equipment In May 2011, the Group acquired new premises and equipment through business combination at a fair value of GEL 7,299 thousand. Additionally the Group acquired new property amounting to GEL 5,831 thousand and disposed of property amounting to GEL 792 thousand during the six month period ended 30 June Goodwill Movements in goodwill arising on the acquisition of subsidiaries are: 30 June December 2010 Carrying amount at 1 January 1,262 1,958 Transfer to disposal group held for sale - (696) Acquisition of subsidiary 769 Carrying amount at 30 June / 31 December 2,031 1,262 Gross book value 2,572 1,803 Accumulated impairment losses (541) (541) Carrying amount at 30 June / 31 December 2,031 1,262 Goodwill Impairment Test Goodwill is allocated to cash-generating units (CGUs, which represent the lowest level within the Group at which the goodwill is monitored by Management and which are not larger than a segment) as follows: 30 June December 2010 LLC TBC Kredit 1,262 1,262 Constanta Bank JSC Total carrying amount of goodwill 2,031 1,262 The recoverable amount of each CGU was determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by Management covering a five-year period. Management determined budgeted gross margin based on past performance and its market expectations. The weighted average growth rates used are consistent with the forecasts included in industry reports. If the discount rate applied to the discounted cash flows of LLC TBC Kredit had been 10% higher than Management s estimates, the Group would need to reduce the carrying value of goodwill by GEL 843 thousand. Had impairment been recognised, the Group would not be able to reverse any impairment losses that arose on goodwill in subsequent periods even if circumstances improve. Recoverable amount of LLC TBC Kredit CGU exceeds its carrying amount by GEL 3,372 thousand. The CGU s carrying amount would equal to value in use at a discount rate of 13.81% p.a. If the discount rate applied to the discounted cash flows of JSC Constanta Bank had been 10% higher than Management s estimates, the Group would not need to reduce the carrying value of goodwill. Had impairment been recognised, the Group would not be able to reverse any impairment losses that arose on goodwill in subsequent periods even if circumstances improve. Recoverable amount of JSC Constanta Bank CGU exceeds its carrying amount by GEL 6,655 thousand. The CGU s carrying amount would equal to value in use at a discount rate of 17.33% p.a. 16

20 10 Disposal Group Held for Sale The assets and liabilities related to JSC United Financial Corporation have been presented as held for sale following the approval of the Group s management and shareholders on 20 December 2010 to sell company JSC United Financial Corporation. The completion date for the transaction is expected by December Major classes of assets of disposal groups held for sale are as follows: 30 June December 2010 Assets of a disposal group held for sale: Current income tax prepayment - 53 Deferred income tax asset Other assets Intangible assets 2,249 2,216 Premises and equipment Total assets of disposal groups held for sale 3,536 3,115 Major classes of liabilities directly associated with disposal groups held for sale are as follows: 30 June December 2010 Other liabilities Total liabilities directly associated with disposal groups held for sale An analysis of the result of discontinued operations, and the result recognised on the re-measurement of assets or disposal group is as follows: 30 June June 2010 Revenue Expenses (1,346) (953) Loss before tax of discontinued operations (1,052) (752) Income tax relating to profit before tax of discontinued operations (25) (63) Loss for the period from discontinued operations (1,077) (815) 17

21 10 Disposal Groups Held for Sale (Continued) An analysis of the cash flows of discontinued operations is as follows: 30 June June 2010 Operating cash flows (577) (772) Investing cash flows (78) (234) Total cash flows (655) (1,006) 11 Due to Other Banks 30 June December 2010 Term placements of banks and financial institutions 116,498 43,431 Loans from banks and financial institutions 2, Correspondent accounts and overnight placements of other banks 8,041 3,570 Total due to other banks 127,092 47, Customer Accounts 30 June December 2010 State and public organisations - Current/settlement accounts 77,146 44,287 - Term deposits 16,329 5,940 Other legal entities - Current/settlement accounts 401, ,854 - Term deposits 173, ,288 Individuals - Current/demand accounts 364, ,228 - Term deposits 586, ,755 Total customer accounts 1,619,637 1,365,352 State and public organisations include government owned profit orientated businesses. 18

22 12 Customer Accounts (Continued) Economic sector concentrations within customer accounts are as follows: 30 June December 2010 Amount % Amount % Individuals 951,006 59% 851,983 62% Trade and services 332,858 21% 263,853 19% Construction 35,124 2% 38,555 3% Government 42,281 3% 22,115 2% Energy 15,388 1% 12,934 1% Transport and communication 22,663 1% 11,245 1% Mining and natural resource processing 3,840 0% 4,709 0% Agriculture 1,974 0% 602 0% Other 214,503 13% 159,356 12% Total customer accounts 1,619, % 1,365, % 13 Other Borrowed Funds At 30 June 2011, other borrowed funds comprised the following: Outstanding amount in original currency GEL USD EUR Outstanding amount in GEL International financial institutions - 102,550 1, ,627 Local banks and financial institutions 10, ,000 Foreign banks and financial institutions 11, , ,914 Other financial institutions ,630 5,406 Total 21, ,515 3, ,947 At 31 December 2010, other borrowed funds comprised the following: Outstanding amount in original currency GEL USD EUR Outstanding amount in GEL International financial institutions - 64, ,164 Local banks and financial institutions 55, ,011 Foreign banks and financial institutions 4,398 59, ,022 Other financial institutions ,709 Total 59, , ,906 19

23 14 Provisions for Liabilities, Charges and Credit Related Commitments Movements in provisions for liabilities and charges are as follows: Credit related commitments Other Total Carrying amount at 1 January ,789 1,500 5,289 Additions recorded in profit or loss (641) - (641) Carrying amount at 1 January ,148 1,500 4,648 Additions recorded in profit or loss 1,288-1,288 Carrying amount at 30 June ,069 1,100 8,169 Credit related commitments: Specific provision was created against losses incurred on financial guarantees and commitments to extend credit to borrowers whose financial conditions deteriorated. The balance at 30 June 2011 is expected to be utilised by September Share Capital except for number of shares Number of outstanding shares Ordinary shares Share premium Total At 1 January ,000 15, , ,723 New shares issued 1, At 31 December ,131 15, , ,836 At 30 June ,131 15, , ,836 All ordinary shares have a nominal value of GEL 100 per share (31 December 2010: GEL 100 per share) and rank equally. Each share carries one vote. Share premium represents the excess of contributions received over the nominal value of shares issued. 16 Share Based Payments In November 2005, the Supervisory Board of the Group resolved to award 2,834 options to purchase the Bank s ordinary shares to the Bank's top management. Each share option converts into one ordinary share of JSC TBC Bank on exercise at the nominal value of GEL 100 each. The options carry neither rights to dividends nor voting rights. Share options are subject to 5 year vesting period. The fair value of the share options as at the grant date was estimated at GEL 2,420 per share option. Management expenses granted share options over the vesting period in operating expenses within staff costs. In May 2011, the board of shareholders and the board of supervisors of the Group resolved to award employees 3,300 options to purchase the Bank s ordinary shares. Each share option converts into one ordinary share of JSC TBC Bank at an exercise price of the Group s book value per share outstanding as at the previous reporting year end. After exercise the shares carry rights to dividends but do not carry voting rights and are restricted to sell before However, the right to sell the shares will be granted and they will become voting shares before 2014 if: The Bank is listed on a stock exchange. There is any other type of qualified sale of the Bank. 20

24 16 Share Based Payments (Continued) Share options are subject to 2 year vesting period. The fair value of the share options as at the grant date was estimated at GEL 2,837 per share option. Management expenses granted share options over the vesting period in operating expenses within staff costs. In GEL except for number of share options 30 June June 2010 Cumulative number of options granted as at the beginning of the period - 1,133 Number of options granted during the period Cumulative number of options granted as at the end of the period Value at grant date per share option (GEL) 2,837 2,420 Expense recognised as staff cost during the period (GEL thousand) - - Number of options outstanding at the beginning of the period - 1,133 Number of options exercisable at the beginning of the period - 1,133 Number of options exercisable at the end of the period Number of options outstanding at the end of the period 741 1,133 In August 2011 the eligible employees exercised 579 share options. 17 Earnings per Share Basic earnings per share are calculated by dividing the profit or loss attributable to owners of the Parent by the weighted average number of ordinary shares in issue during the year. except for number of shares Note 30 June June 2010 Profit for the period from continuing operations attributable to the owners of the Parent 48,720 29,113 Profit for the period attributable to the owners of the Parent 47,642 28,298 Weighted average number of ordinary shares in issue (thousands) , ,000 Basic earnings per ordinary share from continuing operations attributable to the owners of the parent (expressed in GEL per share) Basic earnings per ordinary share attributable to the owners of the parent (expressed in GEL per share) Diluted earnings per share are calculated by dividing the profit or loss attributable to owners of the Parent by the weighted average number of ordinary shares adjusted for the effects of all dilutive potential ordinary shares during the period: except for number of shares 30 June June 2010 Profit for the period from continuing operations attributable to the owners of the Parent 48,720 29,113 Profit for the period attributable to the owners of the Parent 47,642 28,298 Weighted average number of ordinary shares in issue adjusted for the effects of all dilutive potential ordinary shares during the period (thousands) 152, ,131 Diluted earnings per ordinary share from continuing operations attributable to the owners of the parent (expressed in GEL per share) Diluted earnings per ordinary share attributable to the owners of the parent (expressed in GEL per share)